In cryptocurrency, the term is divided into two parts: tokens and coins. The two are frequently assumed to be synonymous.
But did you know there are significant differences between the two?
The most fundamental distinction is between the two types of tokens in terms of definition, creation, purpose, and application. The following are the key distinctions between tokens and coins that you should be aware of.
What is a coin?
Coins are digital assets that run on their own blockchain, for example, Bitcoin working on the Bitcoin blockchain or Ether working on the Ethereum blockchain.
Meanwhile, tokens are digital assets issued by a project that can be used for payments in order to enjoy the services provided by the project.
What are tokens?
Tokens generally do not have their own blockchain and are hosted on other blockchains such as Ethereum, Solana, Polkadot, and so on.
How to Make Crypto Coins and Tokens
Coins are created through a mining process or mining with a Proof of Work or Proof of Stake mechanism.
Miners generate coins after completing certain processes in the coin blockchain and receiving coins in return.
Tokens, on the other hand, are generated in decentralized applications (DApps) hosted by blockchains that use smart contracts, such as Ethereum.
Users receive an allocated number of tokens when they fund smart contracts with blockchain native coins, allowing them to interact with DApps.
DApps that receive coins in exchange for their tokens will then develop their services using those tokens as part of the project to be created.
Tokens often represent some form of value for use in a project.
Goals and usage
Coins are intended as a unit for the storage of value or for making transactions. It can also be used as a store of value that can be stored and then exchanged for something useful.
Tokens are usually intended as a medium of exchange to run a service from the project that provides the token.
Tokens can also function as digital assets to represent ownership.
Token Type
There are four different types of tokens according to the definition of Swiss financial regulator FINMA. The four types of tokens are as follows:
token Utility
Utility tokens are used to gain access to a specific part of a project, such as a particular service or product offering. Due to their limited supply, utility tokens are often expected to increase in value.
Payment Token
Payment tokens have the sole purpose of paying for services or goods. They are similar to the way coins function but more specific in their use. A Security Token or Asset
These are tokens issued by an initial token sale (ITS), or ICO, where people will invest their money with the aim of making a profit.
Token Equity
This is an uncommon form of token today, but equity tokens are those that represent equity or shares in the company.
Conclusion
Coins and tokens are both assets in the cryptocurrency world. The most noticeable distinction between the two is blockchain. Whereas coins have their own blockchain, tokens do not and rely on others.
Popular coins include Bitcoin, Ethereum, Solana, Cardano, and Polkadot. Then there are the popular tokens, such as USDT, USDC, Shiba Inu, UNI, Sushi, and so on.
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